HR has leading role to play in IFRS

What HR should do to prepare for impending changes in financial reporting standards

Organizations that take a holistic approach to the conversion to international financing reporting standards (IFRS) are more successful in adopting IFRS than those that view it as a pure technical accounting exercise, according to Diane Kazarian, Toronto-based IFRS national practice leader for PricewaterhouseCoopers in Toronto.

The impact of the conversion to IFRS from Canada’s generally accepted accounting principles will vary in length and complexity for each organization, but it’s a process HR professionals should take a lead in, said Bruce Sprague, Ernst and Young’s human capital practice leader in British Columbia.

“It is a lot more than just an accounting exercise, it will have an impact on people, processes and technology,” he said.

Although 2011 may still seem a long time away, it is going to take some time to digest and recognize the effect these high level changes will have, said Sprague. “What we are seeing in the market is a lot of companies aren’t thinking of the HR implications to their business.“

It is important to begin to plan for the organizational needs in terms of new talent or training for existing departments, said Kazarian. HR professionals should consider training for themselves as a means to fully understand the process.

“There are lots of seminars and courses out there,” she said. “One might think that it is only finance people that go to those, but we’ve seen people from all parts of the organization attend.”

In addition to recruiting and training, HR professionals also need to pay close attention to the ways IFRS will affect compensation plans and retention of key talent, according to Sprague, who said the timeline of the process is difficult to predict but it could take years.

Both experts agree companies should be taking the first step to conversion now, which is to perform a company diagnostic to determine what areas will be affected.

In many sectors, IFRS will affect earnings, earnings per share and financial position, all of which will affect the entire organization. Incentive thresholds might be met (or become unachievable) as a result of IFRS adoption simply because reported metrics could change, including those used for incentive compensation thresholds such as income, revenue and net asset value, according to a report by Ernst and Young.

The sooner HR professionals begin to evaluate the impact of the IFRS conversion, the better prepared they will be, said Sprague. He offered steps for HR professionals to help prepare the business for the change:

• Many large corporations have finance teams assessing the impact of IFRS — find out what the finance team is doing and try to get a seat at the table. Make sure they’ve thought about how it will change bonuses and stock option plans.

• Inventory the current team of HR professionals in the organization to figure out how familiar they are with IFRS and the effect it will have on the business. Some companies may have a specific benefit and compensation specialist who needs that expertise and additional training may be required. It’s also time to start integrating IFRS seminars and professional development into finance departments.

• Does the organization have enough staff to handle IFRS conversion? Numerous areas of the company, including information technology, may need additional people, especially over the next few years. And IT specialists are already at a premium in Canada, especially those who understand accounting implications.

• HR might also want to develop succession plans for key IFRS-trained technical resources, and revisit the company’s compensation strategy. This could help mitigate the risk of losing key finance people.

• HR should be working with their communications counterparts to ensure any changes resulting from IFRS get the talk time they need now, and everyone understands what is happening and why.

Accounting Changes

What is IFRS?

The move to international financial reporting standards (IFRS) from generally accepted accounting principles (GAAP) was mandated by Canada’s Accounting Standards Board to be a requirement for public companies by Jan. 1, 2011.

Private companies are currently able to continue to report under GAAP but should note changes are also expected to GAAP standards.

An IFRS conversion has the ability to affect an organization’s recruitment needs, training, and retention rates. Compensation plans can also be affected, especially when compensation is closely tied to the earnings of the organization.

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